4.2.5: Global expansion and uncertainty

global expansion

global expansion

• globalisation

• growth of MNCs

• MNCs benefit most from global expansion by developing a competitive advantage:

  • bigger economies of scale

  • global sourcing = more scope for best quality resources

  • allow companies to get closer to international customers

  • bigger range of knowledge and scope for innovation

  • diversify risk by engaging in a wider range of business activities

global uncertainty

• increased interdependence

• key event in one country may seriously impact another

• significantly integrated economies

• raised levels of uncertainty

• affects international trade

• reduces job and wealth creation

effect of exchange rate movements on business

• price of one currency in terms of another

• prices change as they’re determined by market forces, and change with supply and demand

• appreciation and revaluation:

  • nation’s currency gets stronger

  • unit of one currency can buy more of another currency

  • fixed exchange rate = doesn’t fluctuate

  • governments wish to change the exchange rate to represent current valuations

  • revalued = government raises exchange rate and becomes stronger currency

• depreciation and devaluation:

  • nation’s currency gets weaker

  • unit of one currency buys less of another

  • devalued = government changes the exchange rate to be weaker, exchange rate falls

• impact of exchange rate appreciation on businesses: (see examples)

  • impact on exporters:

    • demand for exports falls

    • expensive

  • impact on importers:

    • demand for imports rises

    • cheaper

• impact of exchange rate depreciation on businesses: (see examples)

  • impact on exporters:

    • demand for exports rises

    • cheaper

  • impact on importers

    • demand for imports falls

    • expensive

significance of exchange rate changes on businesses

• elasticity on demand

  • depreciation =